ABA Accounts Payable & Receivable Management 3

Question 1

Which entry correctly records the write-off of a $500 uncollectible account under the allowance method?

Accepted Answer

Debit Allowance for Doubtful Accounts $500; Credit Accounts Receivable $500

Answer

Debit Bad Debt Expense $500; Credit Accounts Receivable $500

Answer

Debit Accounts Receivable $500; Credit Allowance for Doubtful Accounts $500

Answer

Debit Bad Debt Expense $500; Credit Allowance for Doubtful Accounts $500

Question 2

How does a Notes Receivable differ from Accounts Receivable?

Accepted Answer

Notes receivable are supported by a formal written promise and typically bear interest

Answer

Notes receivable are always current; accounts receivable can be long-term

Answer

Notes receivable are recorded on the income statement; accounts receivable on the balance sheet

Answer

There is no practical difference between the two

Question 3

A company's Days Payable Outstanding (DPO) increases significantly. Which interpretation is most accurate?

Accepted Answer

The company is taking longer to pay its suppliers

Answer

The company is collecting receivables faster

Answer

The company's inventory is turning over more slowly

Answer

The company's credit rating has improved

Question 4

When a previously written-off account is unexpectedly collected under the allowance method, the first step is to:

Accepted Answer

Reinstate the receivable by reversing the original write-off entry

Answer

Credit Bad Debt Expense directly

Answer

Record cash received and debit Allowance for Doubtful Accounts

Answer

Write off a different account of equal value

Question 5

Which method of estimating bad debt expense is based on the balance in Accounts Receivable categorized by age?

Accepted Answer

Aging-of-receivables method

Answer

Percentage-of-sales method

Answer

Direct write-off method

Answer

Percentage-of-gross-profit method

Question 6

Under the percentage-of-sales method for estimating bad debts, the adjusting entry amount is based on:

Accepted Answer

A percentage of net credit sales for the period

Answer

The ending AR balance

Answer

The prior year's actual write-off amount

Answer

The current allowance account balance

Question 7

A purchase return in the accounts payable system is best documented by:

Accepted Answer

A debit memo issued by the buyer

Answer

A credit memo issued by the vendor

Answer

A revised purchase order from the buyer

Answer

An updated vendor statement